Are you the sort of Web surfer that wants to know just how much a website really wants your eyeballs before clicking over? If so, portal service GoTo.com(Nasdaq: GOTO) is for you, since search results are listed in the order advertisers were willing to pay per visitor.
It works like this: Type "sweaters" into the company's main page and you'll not only discover that there's a site called CyberSweaters -- your online source for great sweaters at great discounts with your satisfaction guaranteed -- but that it was willing to pay GoTo.com $0.30 per click to top the site's search results, two cents more then J.C. Penney(NYSE: JCP). Click on the CyberSweaters link and GoTo.com pockets the $0.30.
The site's per-click numbers, by the way, are all over the board. I did a few searches and found top bids of more than a buck or even two, and mine was hardly a scientific survey.
GoTo.com's bid-based fee arrangement won it some publicity earlier this year for its novelty and as Web-era moralists questioned the ethics of allowing companies to buy their way into top search spots; showing the per-click price paid allows for some transparency. That's nice and all, but are advertisers buying?
Seems so. Shares of GoTo.com started a breakneck upward journey in November following upbeat third-quarter revenue, gross profits, and advertiser numbers. The company's average per-click revenue rose to $0.14 from $0.11 in Q2. That number, in concert with its total number of "paid clicks," is probably the figure the company will tell investors to watch most closely. (Q3 paid clicks were approximately 54 million, which when multiplied by $0.14 gets you to about $7.6 million. That's most of the company's Q3 revenues, with the remaining 10% coming from banner ads.)
A partial victory over Disney (NYSE: DIS) regarding the logo for its Go (Nasdaq: GO) network and the recent purchase of online comparison shopping services company Cadabra has also boosted optimism.
Today the stock jumped nearly 10% in early trading following the announcement that GoTo.com scored a one-year deal to become the default search engine for Internet service provider MindSpring's (Nasdaq: MSPG) Web properties; financial terms were unavailable. Already on board with Earthlink (Nasdaq: ELNK) through a pact that will cost GoTo.com at least $10 million over two years, GoTo.com will have some dandy real estate on a 3 million-member ISP when MindSpring and Earthlink close their planned merger.
An interesting wrinkle in the Earthlink deal is the move by GoTo.com to integrate the aims of the ISP's top-spending advertising partners with its own paying customers whose aims, it might seem, could be at odds on a co-branded site. That GoTo.com was able to bring both groups together suggests a flexibility that could serve it well in adding future partners. But if the MindSpring arrangement is anything like the Earthlink one, GoTo.com will have spent heavily for the exposure with little guarantee surfers won't just head over to Yahoo! (Nasdaq: YHOO) once going online.
With that in mind, I'll suggest that GoTo.com watchers not only track the per-click revenue number but the company's ability to attract advertisers -- particularly major ones that show up on a wide variety of searches because of their breadth of offerings and relevance to the consumer. In its IPO filing, GoTo.com said it relied heavily on a short list of primary advertisers, suggesting that signing on hundreds of little guys results in little more than drops in the proverbial bucket.
And not only will major advertisers provide GoTo.com with more opportunities to collect, but they might actually serve the consumer better as well, keeping users around. Call me a snob, but I don't see my money heading to CyberSweaters anytime soon -- nor do I see lambs wool links making GoTo.com its hoped-for millions.
